Q3 2017 Market Commentary

Posted on: 10/11/2017

The last few years of a bull market are always a bit of a mystery to professional investors; the market rose faster than it did in the early, cautious years when nobody believed there WAS a bull market, even though there appear to have been fewer fundamental or economic reasons for it. The current bull market churns on, even if nobody can explain it, and people who bail out in anticipation of a downturn do so at the risk of missing out on an untold number of months or years of (still somewhat inexplicable) possible gains.

One might imagine that the uncertainties around government policy and fundamental economic issues (failed attempts to repeal the Affordable Care Act and a promise to write a new tax code, for example) would spook investors. Yet the bull market sails on unperturbed.

How can this be? Because if you look past the headlines, the underlying fundamentals of our economy are still remarkably solid this deep into our long, slow economic expansion. Corporations reported a better-than-expected second quarter earnings season, with adjusted pretax profits reaching an annualized $2.12 trillion—which means that American business is still on sound footing. Unemployment continues to trend slowly downward and wages even more slowly upward. The economy as a whole grew at a 3.1% annualized rate in the second quarter, which is at least a percentage point higher than the recent averages and marks the fastest quarterly growth in two years. There is hope that the new tax package will prove as business-friendly as the Trump Administration is promising.

There are still potential speed-bumps down the road. The Trump Administration has threatened multiple trade wars with America’s major trading partners: the NAFTA members Canada and Mexico, and with China. Tight immigration rules could lead to limited labor supplies.

It’s hard to be pessimistic when your portfolio seems to grow incrementally every quarter. The current 12-year stretch of economic growth below 3% a year is America’s longest on record. If the U.S. charts a prudent economic course, it’s possible that the current expansion could at least set new records for longevity. This current expansion just turned 99 months old. The all-time record is 120 months, from 1991 to 2001. We may have to wait two more years for the next great buying opportunity in U.S. stocks.